Bailment and pledge

Bailment&

pledge

MANISH SHARMA

• A delivers a piece of cloth to the tailor to be stitched into a suit.

• A lends a book to B to be returned after examination.

• A sells certain goods to B who leaves them in A ‘s possession.

• An insurance company places a damaged insured car of A in possession of R, a repairer .

• E’s ornaments having been stolen and recovered lying in Police custody.

Bailment and Pledge

What is Bailment?• Section 148 defines Bailment as:

“The delivery of goods by one to another person for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.” The person delivering the goods is called the ‘Bailor’, and the person to whom goods are delivered is called the ‘Bailee’.

Bailment & pledge

• Section 148 of indian contract act 1872• Delivery of goods by 1 person to another for

some purpose • Contract to return after use or to dispose as

asked by the person who delivered the goods• Bailor: who gives• Bailee : who takes• Bailment: transaction

Examples

• Hiring a bicycle • Giving cloth to a tailor • Delivering watch for repair

Essentials of Bailment

1. Goods: Bailment can be effected only with respect to goods.

2. Delivery: Delivery of goods by one person to another is essential.– ‘Delivery’ includes:– Physical delivery– Constructive delivery– Symbolic delivery

Essentials of Bailment

3. To be returned – Without demand unless agreed otherwise.

4. In specie– i.e., the same goods are to be returned and

not the equivalent. – including any accretion, e.g., bonus shares,

calf born to a cow.

Kinds of bailment

Kinds of bailment Based on benefit: Bailment for the exclusive benefit of :1] bailor: leaving goods in safe custody without paying2] bailee :a loan of some article like a pen 3] mutual benefit: contracts for hiring, repair ,etc

Kinds of bailment:

• Based on reward: 1] Gratuitous bailment: neither bailor nor bailee is entitled for remuneration, example: lending a book to a friend 2] Non-gratuitous bailment: bailment of reward: either bailee or bailor is entitled to a remuneration , example: hire, tailor, etc

Duties of bailor

• To Disclose faults in goods bailed [S.150]• To repay the necessary expenses [S.158]• To indemnify the bailee [S.164]• Liability on premature breach of

bailment[S.159]

Duties of Bailor

1. To disclose faults in goods– Only known faults where bailment is

gratuitous. – All faults including not known but

existing at the time of bailment in case of non-gratuitous bailment.

Duties of Bailor

2. To bear expenses– Gratuitous Bailment: All expenses – ordinary

or extra-ordinary.– Non-Gratuitous Bailment: Only extra-ordinary

expenses.

3. To indemnify for loss caused because of defective title.

Duties of bailee:

• Take reasonable care of goods[S.151] • Not to make unauthorized use of goods[S.154]• Not to mix goods with his own goods[S.155-

157] • Duty to return goods[S.160&161]• Not doing any act inconistent with terms of

bailment[S.153]• Returning any profit [S.163]

Duties of Bailee

1. To take care of the goods bailed– As much care as a man of ordinary

prudence will take in respect of his own goods of the same nature and value.

2. Not to make unauthorized use of goods

Duties of Bailee

3. Not to mix bailor’s goods with his own/other bailor’s.

• If does, then:– Where goods can be separated • Bailee to bear cost of separation.

– Where goods can not be separated • Bailor to be compensated for loss.

4. To return the goods in specie

Difference between sale & bailment

• Ownership transferred? • Buyer under no obligation to return goods?

Rights of bailee

• Right to compensation for loss on account of fault in goods bailed[S.150]

• Right to receive necessary expenses[S.158]• Right against premature termination of

bailment[S.159]• Right to compensation in case of defective

title[S.164]• Delivery of goods to one of the joint owners[S.165]• Right against third parties

Rights of bailor

• Right of indemnity for losses due to negligence by bailee[S.152]

• Termination of bailment on inconsistent use by the bailee[S.153]

• Compensation for unauthorised use by the bailee[S.154]• Compensation when the bailee mixes the goods bailed

with own goods [S.155]• Right of return of goods back[S.160]• Right to profit from goods bailed[S.163]

Termination of bailment

• Doing an act inconsistent with terms of bailment[S.153]

• At desire of the bailor in case of gratuitous bailment[S.159]

• On expiry of period[S.160]• On accomplishment of object[S.160]• Death of the bailor or bailee [S.162]

• Section 172

“Pledge is the bailment of goods as security for payment of debt or performance of a promise.”

PLEDGE OR PAWN :

• Bailment of goods as security for payment of debt or performance of a promise :PLEDGE

• Bailor: PAWNER • Bailee: PAWNEE Example: A borrows Rs.100 from B & keeps his watch as security : pledge

Difference between bailment & pledge:

• PURPOSE: security? ; repairs? • RIGHT OF SALE: sale on default? no right to sale? • RIGHT OF USING THE GOODS: no right?

Rights of Pawnee:

• Right of retainer{S.173}: right to retain goods until dues paid

• Right of transfer for subsequent advances:{S.174}: on lending money to same debtor without further security

• right to retain earlier goods extends Right to extraordinary expenses {S.175} Right to use the pawner or sell the goods on default.

Rights of Pawner

Rights of Pawner: Enforcement of pawnee’s duties Defaulting pawnor’s right to redeem